Non-Manufacturing Extends Its Gains In July: August 5, 2014

Market CommentariesNon-Manufacturing Extends Its Gains In July - August 5, 2014

Another day, another positive economic issuance. On point, after a succession of rather fortuitous business releases over the past fortnight, including upbeat data on manufacturing activity, car sales, and employment growth, the Institute for Supply Management, (ISM), an Arizona-based trade group, earlier this morning issued its monthly survey indicating that a nice bounce in the services sector had taken place in July. Specifically, the ISM non-manufacturing survey climbed to its highest monthly level since its inception in 2008.

All told, the ISM non-manufacturing index jumped by 2.7 points, to 58.7, last month. Expectations had been for a flattish result of 56.1. A reading above 50.0 signals that this sector is expanding. It should be noted that July marked the 54th month in a row in which this survey, which tracks the performance of the services sector, has shown growth, that is a result above 50.

Breaking the report down by its components, we find that in addition to the aggregate index, that production surged from 57.5 in June to 62.4 in July. New orders also climbed further rising by 64.9 last month from 61.2 in June. Gains of lesser magnitude also occurred in the employment component and in supplier deliveries. It should be noted that each of the various components in the overall index registered a reading above 50.0. The weakest sector was inventories, which slowed its rate of growth from 53.5 to 51.0 last month--which likely is a positive as such stockpiles will now have to be rebuilt.

As to what the affected purchasing managers are saying, in construction the overriding belief is that conditions are improving, while in the information category the outlook for the second half is getting better. In retail trade, the executives say that business is still very good.

All told, as noted, this was the best ISM non-manufacturing reading since the survey's inception six years ago. During the past 12 months, it should be emphasized, the range for the aggregate survey has been 51.6 to the latest result of 58.7. The average was 55.0 during this span.

Finally, this was a strong report that gives us some sense that the nation's economy, which strengthened mightily in the second quarter as it advanced at a 4.0% pace, will head forward by 3%, or better, during the final two quarters of this year and even step up the pace somewhat in 2015.